chapter 10 - Chapter 10 Section 404 Audits of Internal...

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1 Chapter 10 Section 404 Audits of Internal Control and Control Risk 1. Internal Control Objectives What are the three broad internal control objectives? R O C R - ________________________________________________________________________________ O - ________________________________________________________________________________ C – ________________________________________________________________________________ Review Question 10-1, 10-2 2. Management and Auditor Responsibilities for Internal Control a. Management’s Responsibilities for Establishing Internal Control – Two key concepts: (1) ______________________________________ (2) ______________________________________ What’s the idea of “collusion” in internal control design? b. Section 404 of the Sarbanes-Oxley Act Requirements for Public Companies: (1) (2) Review Question 10-3, 10-4 c. Most U.S. Companies’ Internal Control is based on the COSO Framework. What is COSO Framework? Review Question 10-9 d. SEC’s Requirements – 3. Auditor Responsibilities for Understanding Internal Control a. The auditor must obtain a sufficient understanding of: (1) (2) Review Question 10-6 b. The auditor must gain understanding of the following three types of controls: (1) (2)
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2 (3) c. Section 404’s requirement about auditor’s responsibilities for testing internal control: __________________________________________________________________________________ 4. COSO Components of Internal Control - E ventually, I CRAAM – Please also see Table 10-2 on p. 303. E E nvironment I nformation & C ommunication RA R isk A ssessment A A ctivities M M onitoring Review Question 10-10, 10-12, Problem 10-38 a. E E nvironment – Control Environment I B MACHO I I ntegrity and ethical values B Audit Committee and B oard of Directors M Philosophy of M anagement and operating style A A ssignment of authority and responsibility C C ommitment to c ompetence H H uman resource policies and procedures O O rganizationa l structure Review Question 10-11 b. RA R isk A ssessment – How do auditors do it? c. A A ctivities – Control Activities SAD P hysical P erformance S S egregation of duties A A uthorization of transactions and activities D D ocumentation and records P P hysical control over assets and records P P erformance checks Review Question 10-13, 10-16, Problem 10-37 d. I nformation & C ommunication The purpose of an entity’s accounting information and communication systems is: e. M M onitoring (1) What does “monitoring” mean in the COSO internal control framework? (2) Rules regarding monitoring in internal controls – - SAS 65
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3 - PCAOB Standard 2 Review Question 10-7 5. Obtain and Document Understanding of Internal Control a. Process of understanding internal control and assessing control for an integrated audit of financial statements and the effectiveness of internal control over financial reporting : Phase 1: Phase 2: Phase 3: Phase 4 Review Question 10-17, 10-31, Problem 10-43 b. Phase 1
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chapter 10 - Chapter 10 Section 404 Audits of Internal...

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